California Gas Prices: the Answer Always is More Regulation

The Phillips 66 refinery in Rodeo (Merc)

We've posted before about why California gasoline prices are higher than the rest of the country (gas taxes, "boutique" gas formula, banning new Internal Combustion Engine cars after 2035, etc.).

As refineries close down, the ones that remain have been accused of price gouging--any person capable of critical thought might ask herself why refiners are abandoning such a profitable business--but critical thinking about Progressive governance has been sorely lacking for decades.

The long-term supply outlook has become so dire that last week the Progressive government floated trial balloons about California seizing control of the refineries. Realizing that running refineries (and bearing responsibility for the inevitable debacles) was a step too far, Governor Newsom proposed a bill that he thinks will stabilize fuel prices. [bold added]

California Gov. Gavin Newsom on Thursday announced a first-in-the-nation plan to require petroleum refiners to maintain minimum fuel reserves to avoid supply shortages he says create higher prices at the gas pump.

The proposal would authorize the California Energy Commission to require state refiners to maintain a minimum supply, which would help prevent gas price spikes and save Californians hundreds of millions of dollars every year. Newsom said profit spikes for oil companies are overwhelmingly caused by refiners not backfilling supplies when they go down for maintenance.

The industry is likely to have to build storage facilities in order to hold the gasoline reserves. Also, the gasoline reserves themselves have a cost. As students learn in Finance 101, all assets on the balance sheet are financed through debt or equity (for analytical purposes debt is assumed). Adding storage and gas-reserve assets will increase interest expense which the companies will try to recover through higher prices.

Higher prices are what Governor Newsom was trying to avoid, but if the regulator doesn't allow the expense to be passed through to the customer, the exodus of refiners will accelerate. In the one-Party state, the answer to unforeseen consequences of regulation is always more regulation that will make the problems worse.